What Is a C Corporation?

C corporations or "C corps" are the most prevalent of corporations. They pay corporate taxes on their earnings before distributing profits to their shareholders in the form of divid﷽ends if they choose to do so. Shareholders must then also pay personal income tax on that income received. This creates double taxation on the same earnings.

C corps can be compared with 澳洲幸运5官方开奖结果体彩网:S corporations and 澳洲幸运5官方开奖结果体彩网:limited liability companies (LLCs) which also separate a company's assets from its owners but with different legal structures and tax treatment. Another type of organization is the B corporation or benefit corporation which is a for-profit firm but different from C corps in purpose, accountability, and transparency. They're not different in how they’re taxed, however.

How C Corporations Work

C corporations can pay corporate taxes on earnings before distributing their profits to their shareholders in the form of dividends if they choose to do so. Individual shareholders are then subject to personal income taxes on the dividends they receive. The tax on corporations is 21% as of 2025.

Another clear advantage is the separation between management and the owners or shareholders. This allows longer continuity of C corporations beyond the life of the owners which can include partial owners called shareholders. It allows the institutionalization of these corporations and the possibility of passive income through ownership for the owners.

A C corporation is required to hold at least one meeting each year for shareholders and directors. Minutes must be maintained to display transparency in business operations. A C corporation must keep voting records of the company's directors and a list of the owners' names and ownership percentages. The business must have bylaws on the premises of the primary business location. C corps will file annual reports, financial disclosure reports, and financial statements.

How to Create a C Corporation

Creating a C corporation is similar to the process of formalizing other types of business entities. These are the procedures for establishing one:

1. Choose and register an unregistered business name.
2. File the articles of incorporation with the Secretary of State according to the laws of that state.
3. C corporations offer stock to shareholders who become owners of the corporation.
4. All C corporations must file Form SS-4 to obtain an employer identification number (EIN). Requirements vary across jurisdictions but C corps are required to submit state, income, payroll, unemployment, and disability taxes. There may be other regulatory requirements depending on what business the company operates in.
5. Corporations must establish a board of directors to oversee management and the operation of the entire firm. Appointing a board of directors seeks to resolve the 澳洲幸运5官方开奖结果体彩网:principal-agent dilemma in which moral hazard and conflicts of interest can arise when an agent works on behalf of a principal.

Advantages and Disadvantages of C Corporations

C corporations limit the personal liability of the directors, shareholders, employees, and officers. The legal obligations of the business can't become a personal debt obligation of any individual associated with the company. The C corp continues to exist as owners change and members of management are replaced.

A C corporation can have many owners and shareholders but it's required to register with the Securities and Exchange Commission (SEC) when selling securities. The ability to offer shares of stock allows the corporation to obtain large amounts of capital which can fund new projects and future expansions.

There are some drawbacks, however. Filing the articles of incorporation for a C corp can be more expensive than other business structures and incur greater legal fees. They're also subject to greater regulatory scrutiny which can increase the company's legal expenses.

There are also tax considerations. The profits of a C corporation are effectively taxed twice, first when the company files its income taxes and again when those profits are distributed as dividends. Shareholders in a C corporation can't deduct business losses on their tax returns, unlike an S corp.

C Corporation vs. S Corporation

An S corporation is another type of business structure that allows a company to pass its income, deductions, and losses to its♋ shareholders. Both a C corp and an S corp offer limited liability protection and the process of incorporation is similar for both. The main differences relate to taxation and ownership.

One major disadvantage for C corporations is that profits are effectively taxed twice, first on the company's income taxes and again when shareholders receive dividends. An S corporation is a "pass-through" entity. It doesn't pay corporate income taxes. Profits are instead taxed at the shareholder level.

S corporations also have greater restrictions on ownership. A C corporation can have an unlimited number of shareholders but an S corporation can have no more than 100 shareholders. An S corp can't be owned by a C corp, another S corp, or a limited liability entity.

The Bottom Line

A C corporation is a business structure that allows the owners of a business to be legally separate from the business iꦬtself. This allows a company to issue shares and pass on profits while limiting the liability of the sha𒐪reholders and directors.